Over these web-pages we have seen a simple rule-of-thumb to refinancing the mortgage – if we see a 2% rates difference between your mortgage rate and current market loans.
In this article we will see differently: There are cases where the rate difference is not 2% but we can benefit from Home Refinancing.

Before we see some examples, we should understand what the mortgage refinance means:  Refinancing will have its closing costs. Now, take the closing costs and devide it to the $ savings on the monthly payment.
This is our “break  even point”.

Now, we have to decide if the break even point is worth-while, or to be more exact – how many monthes in savings that will result from the home refinance process, will have to pass in order to coverour closing costs. If the answer is relatively low – than refinancing is worth-while, even if the rate difference is not 2%…

Let’s examine an example:

• Current mortgage balance = 100,000 $
• Current rate = 7.75%, monthly payment = 715 $
• New available rate = 6.25%, new monthly payment = 615$
• Savings per month = 100$
• Closing costs = 2,500 $ , Break Even Point = 2,500/100 = 25 monthes

So in this example, refinancing is a very good idea – that is, only if we stay in our home for the next 2 years. That way, we will recover our closing costs, and every extra month above 25, is pure $$$ that we save by the loan refinance.

So, we saw an example where the rate difference is merely 1.5%and the remortgage will acctually save us money !

Remember! rate refinancing does not need any rules or thumbs – we merley have to check our “break even point” vis a vis our closing costs. If the result is positive and it takes a reasonable period of time to get back the Refinancing costs – then get to it.